A Lifetime ISA can help you build up a deposit to buy your first property, or to fund your retirement, by giving you a 25% tax free bonus each year.

You can choose from two types of Lifetime ISA:

  • Cash: You qualify for the bonus and earn interest based on what the savings provider you choose offers.

  • Stocks and shares: You are eligible for the bonus, but your capital will be at risk due to the volatility of the stock market.

Speak to an independent financial adviser if you are unsure if a stocks and shares Lifetime ISA is right for you.

Here is more information on the Lifetime ISA

Who can open a Lifetime ISA?

To qualify for a Lifetime ISA you have to:

  • Be at least 18 years old

  • Be younger than 40 years old

  • Have a National Insurance number

Can you have a joint Lifetime ISA?

No, you can only open a Lifetime ISA in your own name.

How do Lifetime ISAs work

Whether you choose a stocks and shares Lifetime ISA or a cash Lifetime ISA, the way they both work means you can:

  • Pay in up to 4,000 a year: You will earn a 25% bonus on anything you add during the tax year, up to a maximum bonus of 1,000.

  • Build up a house deposit: You can withdraw the money from your Lifetime ISA without any charges if you use it towards your first mortgage deposit.

  • Build up a retirement fund: The Lifetime ISA pays a 25% bonus each year until you are 50. However, you have to wait until you are 60 to make a withdrawal.

What happens if you withdraw early?

You can withdraw your money from a Lifetime ISA for other reasons than for a property deposit or for retirement, but you will be charged.

You will normally face a 25% deduction on anything you withdraw, which could end up costing you more than you have put into the account.

For example, if you have 4,000 in your Lifetime ISA, and get your bonus at the end of the tax year, you then have 5,000. If you then try to withdraw 5,000, you will face a 25% charge of 1,250, meaning you only get 3,750 in cash.

However, this has been cut to a 20% deduction until April 5 2021.

How does the bonus work?

The bonus will be calculated and paid monthly, so you will earn 25% of the amount you pay in over a tax year up to 4,000.

If you pay in 4,000 during the first tax year, your balance would increase to 5,000 with the 25% bonus, before interest is added. If you added another 4,000 the next year, you would get another 1,000 bonus making your total savings 10,000, plus interest.

You stop earning the bonus on your savings once you reach 50 years old, but you can continue to save and earn interest in your ISA.

Can you save into a different ISA during the same tax year?

Yes, you can save into a Lifetime ISA as well as a cash ISA, stocks and shares ISA and innovative finance ISA during the same tax year.

Any money you save will count towards your annual ISA allowance, which is 20,000 in the 2020/21 tax year.

What if you have a Help to Buy ISA?

You can do one of three things:

  • Transfer the money into a Lifetime ISA and continue to save

  • Use your Help to Buy ISA for a property deposit and save into a Lifetime ISA for your retirement

  • Use your Lifetime ISA with the government bonus and withdraw the money from your Help to Buy ISA to go towards buying your first home

Which is the best Lifetime ISA

In most cases the best Lifetime ISA is one which gives you the best return with the features that you need. This is why there can be no best Lifetime ISA for everyone, because every individual has different financial goals and needs and different types of Lifetime ISAs may work better for different people. What's best for you may not be the best for others.

In order to get the best deals, compare Iifetime ISA providers, so that you can make an informed decision by knowing what's available in the market.

Lifetime ISA FAQs

Q

How many Lifetime ISAs can I have?

A

One, and you can only pay up to 4,000 into it each tax year. This leaves you with the rest of your ISA allowance to use in another ISA.

Q

When do I get the bonus?

A

It should be added to your Lifetime ISA at the end of the tax year, 4th April. However, check with your provider before opening your account to be sure.

Q

Is the bonus better on a Lifetime ISA or Help to Buy ISA?

A

They both offer a 25% bonus, but the Lifetime ISA lets you use it towards your mortgage deposit, and the Help to Buy ISA pays it off your mortgage instead.

About our Lifetime ISAs comparison

Q

Who do we include in this comparison?

A

We include Lifetime ISAs from our panel. They are regulated by the Financial Conduct Authority (FCA).

Here is more information about how our website works.

Q

How do we make money from our comparison?

A

We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.

You do not pay any extra and the deal you get is not affected.

Last updated: 8 October, 2020